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Planning for the Next Crisis

It was announced this week that Justin Trudeau’s government is giving $300-$500 each to 6.7 million Canadian seniors, at a total cost of $2.5 billion. We seniors will accept the money, of course. We don’t have a choice. For most of us, it will automatically be deposited into our bank accounts. But how many of us among the 6.7 million seniors can be said to really NEED this money?

Oh, some of us do, for sure, but those individuals likely need more than that every year and not just in a pandemic year.

Furthermore, we should be clear that Trudeau is doing this with borrowed money. That is, he is not so much giving us this money as lending it to us. We will have to pay it back. Well, not us individually, of course, but all of us taxpayers collectively. And we will have to pay back not just the $2.5 billion that Trudeau is giving to seniors but also the hundreds of billions that he has “given” to other Canadians since the COVID-19 pandemic started. More likely, we and our children and grandchildren will be paying interest on this debt for many generations to come. And it is not as if seniors will use the money they have been given to stimulate and help restart the Canadian economy. With stores and so much else shut down, there is little to spend it on. Many of us may simply put it in the bank and sit on it. At least, until our taxes come due.

Leaders, particularly political leaders should always be looking one step ahead—at least one step ahead and preferably more. This is something that has not generally been happening. In this crisis, Canadian leaders have done better than some leaders in some other countries, but not much. The fact is that we have often been one step behind rather than one step ahead. We are reacting rather than planning. Consider:

• In the good economic times of the last five years since Justin Trudeau was first elected Prime Minister, the Canadian government should have been trying to slowly pay down the government’s debt and save for a rainy day. Instead, the Trudeau government racked up an additional $100 billion in debt. When the Trudeau Liberals took power, the annual budget was close to balanced, but there was an accumulated debt of over $600 billion, equal to total government revenue for about two years. After five years, the accumulated debt had risen to over $700 billion. This shortsighted plan to buy votes in the present at the expense of fiscal sustainability in the future was inexcusable.

• Despite the experience of previous epidemics such as SARS, Canada was not prepared for a pandemic. We did not have a sufficient quantity of plans and equipment ready to fight the epidemic. For personal protective equipment, we were (and still are) dependent on cheap imports from the very country which is the source of many recent outbreaks.

• Canadian leaders were slow to react to the pandemic. They did not close the border and implement isolation orders fast enough to prevent COVID-19 from infecting tens of thousands of people in Canada.

• When Canadian leaders did close the borders and lock down much of the country, they did so without considering the huge financial cost of shutting down the economy.

• Once the lockdown was in place, the Canadian government quickly realized that it would have to replace the lost income or many Canadians would be forced to stop isolating and try to return to work. So, the Trudeau government has been eagerly “shoveling money out the door.” Justin Trudeau has been treating this crisis as a never-ending election campaign. Every morning, he makes a “motherhood” speech, mouthing platitudes and making a new spending announcement. This has been so successful that he has convinced Canadians that there is an endless supply of federal money. Every time he gives money to one group, three more groups line up with their hand out to get their share.

In the current crisis, everyone is convinced that it is necessary for the federal government to spend money quickly, so convinced that no one is even thinking about whether it is all being spent wisely and no one is thinking about how we are going to pay it all back. We are told that the time for thinking about that will be after the crisis is over. But the whole point of leadership is that leaders should be looking at least one step ahead. Anyone can respond to a crisis by spending money. Now is precisely the time when leaders should be planning what to do once the pandemic is over. They should be taking steps now to deal with the next crisis, not just the current one.

And the next crisis is most likely debt. Everyone knows that the federal government is currently running a large deficit, but how large? To put this into perspective, Canada’s Gross Domestic Product (GDP, the total of all economic activity in the country has been amounting to somewhere around $1.7 to $1.8 trillion, a little less than $2 trillion a year. The federal government accounts for a large chunk of that. The federal government budget (proposed, not actual) for the 2019-2020 year was $355.6 billion, but revenues were projected to be less than that, $338.8 billion, resulting in a deficit of about $16.8 billion. This has been typical of this government. In their five years in power, the Trudeau government has been running annual deficits of close to $20 billion.

With the arrival of the COVID-19 pandemic and the lockdown, all of that changed. The government has announced new spending programs amounting to hundreds of billions of dollars. At the same time, federal government revenue has been dropping as businesses and individuals lose income and therefore pay less in taxes. Because of this, a few weeks ago, the Parliamentary Budget Office estimated the 2020-2021 deficit to be over $250 billion, and it has been rising rapidly with new spending announcements since then. In fact, things are changing so quickly that no one (including the federal cabinet apparently) knows exactly what spending and revenue will actually be. The government has yet to present a revised budget for the year we are in. The annual deficit is quickly reaching the same level as the entire government budget for last year.

And next year is not going to be much better because the pandemic and lockdown are expected to continue. Even if a vaccine is developed and things return to normal the year after that, things won’t return to normal. By that time, many Canadian businesses may have gone bankrupt. The tourist industry, the oil industry, and many other industries are struggling and will need years to recover. It will be terribly difficult for us to climb out of the recession we are in.  Government spending will have to remain high, and government tax revenue will remain low. The government will be under pressure to stimulate the economy but will be unable to do so because it will already be deeply in debt and won’t have the money.

Looked at another way, at the beginning of this year, the Canadian government debt, accumulated over decades, had risen to over $700 billion. But in the next two or three years, at the current rate of spending, that astronomical $700 billion could have doubled or more. The interest payments on our current debt are about $30 billion a year. Three years from now, interest payments will likely have risen to over $60 billion a year, even with record low interest rates. That means that 20 percent of government revenue could be spent just paying interest on our debt. That is over $60 billion a year sucked out of a Canadian economy that will already be struggling mightily. Since there are about 37 million Canadians, almost $1,000 in taxes per Canadian goes to pay interest every year. In three years, the amount will be $2,000 or more. For a family of four, the annual interest charges will amount to $8,000. That is simply not sustainable.

Now is the time to plan for the next crisis. Restructuring should already be taking place. One place to start would be to slash the high salaries of politicians and top-ranking bureaucrats. Another step would be to analyze more closely what is being spent now to see how much of it is necessary and is being spent wisely. Another step would be to prepare Canadians for the sacrifices and hardships that inevitably lie ahead instead of handing them more money and blithely assuring them that everything will be fine. It won’t be.

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